Leasing and Compensation – What the Lessee Is Entitled to When a Vehicle Is Damaged or Written Off
Leasing is an increasingly common way of financing a vehicle in Poland – for both businesses and private individuals. The problem arises when a collision or accident occurs: the vehicle is formally owned by the leasing company, not the driver using it. This raises questions about who is entitled to compensation, how the claims process works, and what to do when the insurer undervalues the payout.
Contents
- Who is entitled to compensation for a leased vehicle
- Partial loss of a leased vehicle – what to watch out for
- Total loss – settlement with the leasing company and the insurer
- VAT in compensation payments – how it works with operating leases
- The most common problems in leased vehicle claims
- What to do after an incident – the order of steps
- Practical examples from our caseload
- FAQ
Who Is Entitled to Compensation for a Leased Vehicle
From a formal standpoint, the leased vehicle remains the property of the leasing company throughout the term of the agreement. The leasing company is the party to the insurance contract and is, as a general rule, the one entitled to compensation for damage to the vehicle.
In practice, however, leasing companies very frequently authorise the lessee to handle the claims process and receive the compensation directly. This authorisation may follow from the lease agreement itself or be granted by the leasing company each time a claim is reported. If the lessee does not have such authorisation, the insurer may refuse to deal directly with them – which is why it is essential to act in coordination with the lessor from the outset.
Some lease agreements include an assignment of compensation claims to the lessee. For such an assignment to be effective against the insurer, it should be made in writing and notified to the insurer before the payment is made. The absence of this formality is sometimes used by insurers to challenge the lessee’s entitlement.
Partial Loss of a Leased Vehicle – What to Watch Out For
A partial loss arises when the vehicle is repairable and the cost of repair does not exceed its market value. In the case of leased vehicles, settling such a claim has several important distinguishing features.
Most lease agreements require the lessee to have the vehicle repaired at an authorised service centre using only original replacement parts. This is a contractual requirement imposed by the lessor, and breaching it can result in additional financial claims from the leasing company when the vehicle is returned. Insurers, however, routinely value repairs using the rates of independent workshops and alternative parts, which are cheaper than originals.
A lessee who is contractually obliged to repair the vehicle at an authorised service centre is entitled to claim compensation covering the actual costs of a repair that meets the lessor’s requirements. The basis for this claim is Article 361 of the Civil Code, under which compensation should cover the full extent of the loss – and the loss is precisely the obligation to incur repair costs corresponding to the contractual requirements. To enforce this right effectively, the relevant provisions of the lease agreement requiring the use of an authorised service centre and original parts should be presented to the insurer.
Total Loss – Settlement with the Leasing Company and the Insurer
A total loss arises when the cost of repairing the vehicle exceeds its pre-accident market value. In that case, the insurer pays compensation equal to the difference between the market value of the vehicle and the value of the salvage. Since the leasing company owns the vehicle, the compensation is generally paid to the lessor.
The leasing company credits the compensation received against the outstanding lease instalments and any other amounts due under the agreement. If the compensation is lower than the total of the lessee’s obligations to the lessor, the lessee may be required to make up the difference from their own funds. This is one of the more serious financial consequences of a total loss in a leasing arrangement – and one of the main reasons why an undervalued payout is doubly harmful: to the lessor and to the lessee.
Challenging the insurer’s decision in total loss cases therefore has particular significance where a leased vehicle is concerned. An undervalued pre-accident market value or an overvalued salvage are the most common sources of dispute and grounds for an appeal or court claim.
VAT in Compensation Payments – How It Works with Operating Leases
In the case of businesses using operating leases who deduct VAT on their lease instalments, insurers typically pay compensation net of VAT. Their argument is that since the lessee deducts VAT on vehicle-related expenses, including VAT in the compensation would result in unjust enrichment.
The issue is, however, more complex than that. Where a business is entitled to deduct only part of the VAT – for example 50%, as applies to passenger cars used for both business and private purposes – the compensation should include the non-deductible portion of VAT. Paying only the net amount in those circumstances would represent an unjustified undervaluation of the payout.
It is also worth noting that the tax position in a finance lease may differ from that in an operating lease. Each case in this area needs to be analysed individually, taking into account both the type of lease and the extent of the lessee’s right to deduct VAT.
The Most Common Problems in Leased Vehicle Claims
One of the most frequent problems is insurers undervaluing the compensation, arguing that repair at an authorised service centre using original parts is not necessary to restore the vehicle to its pre-accident condition. This position is incorrect where the obligation to repair at an authorised service centre follows expressly from the lease agreement – the lessee has no freedom of choice in that situation and faces a real financial risk if the contractual requirement is breached.
A further problem is the absence of, or defects in, the assignment of claims. Where the lessee wishes to pursue compensation independently, they must have an effective authorisation or assignment of claims. Insurers sometimes challenge the validity of an assignment where it has not been properly documented or where the insurer was not notified of it in time.
The settlement of a total loss in the three-party relationship of lessee, lessor and insurer can also be problematic. Each party may have a different interest in how the compensation is apportioned, and a lack of clear arrangements at an early stage can lead to disputes and delays in payment.
What to Do After an Incident – The Order of Steps
The first step after an incident should be to notify the leasing company without delay. Most lease agreements impose this obligation, and failing to comply can have contractual consequences. The claim should be reported to the insurer at the same time.
The lessee should then obtain written authorisation from the leasing company to handle the claim – without this, any assignment or authorisation may raise questions on the insurer’s side. It is also worth checking from the outset whether the lease agreement imposes requirements as to where and how the vehicle is to be repaired, and whether the insurer has taken these into account in its valuation.
If the insurer’s decision is unfavourable – the compensation is undervalued, claims have been rejected or the total loss classification is disputed – the next step is an appeal to the insurer with a detailed justification, and if that does not produce a result, a court claim. At every stage, careful documentation of correspondence, estimates and invoices is essential.
Practical Examples from Our Caseload
A business owner used a passenger car under an operating lease. After a collision, the insurer proposed compensation calculated at independent workshop rates and using alternative parts, stated in net terms. The lease agreement expressly required repair at an authorised service centre using original parts, and the business owner was entitled to deduct only 50% of VAT. The firm presented the insurer with the relevant provisions of the lease agreement and demonstrated that the compensation should cover the costs of repair at an authorised service centre with original parts and the non-deductible portion of VAT. Following the intervention, the insurer changed its decision and paid full compensation corresponding to the actual repair costs.
A client using a vehicle under a finance lease suffered a total loss in a collision. The insurer undervalued the vehicle’s pre-accident value and overvalued the salvage, resulting in compensation insufficient to cover the remaining obligations under the lease agreement. The firm challenged the insurer’s valuation and applied for expert evidence from an independent automotive valuation specialist. On the basis of that report, the court awarded additional compensation that allowed the client to settle the lease agreement without contributing her own funds.
FAQ
Can I as a lessee pursue compensation from the insurer independently? Yes, but only if you have the appropriate authorisation from the leasing company or if the lease agreement includes an assignment of compensation claims to you. Without such authorisation, the insurer may refuse to deal directly with the lessee. It is always worth clarifying this with the lessor at the outset.
The insurer wants to pay net compensation, but my lease agreement requires repair at an authorised service centre – what should I do? You are entitled to claim compensation covering the actual costs of a repair that meets the requirements of your lease agreement. If you are only entitled to deduct part of the VAT, the compensation should include the non-deductible portion. It is worth submitting a written appeal citing the relevant provisions of the lease agreement and Article 361 of the Civil Code. If the insurer upholds its decision, the matter can be referred to court.
What happens if the total loss compensation does not cover my obligations to the leasing company? The shortfall between the compensation and the total of the outstanding lease obligations will generally need to be covered from your own funds – unless the lease agreement or an additional GAP (Guaranteed Asset Protection) policy provides for the difference to be covered. This is precisely why challenging undervalued insurer assessments is so important – every additional zloty of compensation directly reduces the lessee’s potential liability.
Is a GAP policy compulsory with a lease? No, a GAP policy is not compulsory, though many leasing companies recommend it or offer it when the agreement is signed. Its purpose is to cover the difference between the market value of the vehicle and the total of the outstanding lease obligations in the event of a total loss or theft. The terms and scope of cover are worth reading carefully before purchase – offers vary in scope and exclusions.
Contact Us
Compensation cases involving leased vehicles bring together insurance law, contract law and the specific features of settlement with a leasing company – and require familiarity with all of these elements at once.
It pays to be properly prepared: both in knowing what you can claim and in having a clear strategy.
We handle cases for drivers in Poznań and across the Wielkopolska region, with in-person and online consultations available for clients elsewhere in Poland.
Adwokat Marta Krzyżanowicz and Adwokat Michalina Koligot Law Firm “Adwokat dla Kierowców w Poznaniu”
ul. Adama Mickiewicza 18/3, 60-834 Poznań
tel. +48 795 001 536 · +48 531 335 713
kontakt@adwokatdlakierowcy.pl · www.adwokatdlakierowcy.pl
This text is for general information purposes only and does not constitute legal advice. Every case requires individual analysis.